REPORT: Firms Hide Thieving Workers

Tanzania could be losing $10 million (Sh16 billion) annually as a result of thefts in financial institutions, the latest Financial Crimes report reveals. This is enough cash to run for a year the ministry for Labour and Employment, which has been allocated Sh14.9 billion for 2013/14.

However, says report, the stolen amount could be even higher, for researchers say it is difficult to arrive at the exact figure since financial institutions tend to conceal fraud committed by their staff over the fear that being transparent could chase away customers.

“A majority of the players in the financial services industry opt not to report incidences of financial crimes, which may have a bearing on the perception of their prevalence and impact in the industry,” says the latest Deloitte report titled ‘Financial Crimes Survey Report 2013; Where is the exposure?’

Money institutions in Tanzania lose significantly on bribery and kickbacks than their counterparts in Kenya and Uganda. While in Kenya and Uganda financial institutions lose 18 per cent and 23 per cent respectively from bribery and kickbacks, their counterparts in Tanzania lose more than 43 per cent in the same manner.

“Due to poor reporting of financial crimes in Tanzania, the same fraudsters move from one financial institution to another committing the same crimes,” said Deloitte Director Financial Advisory Robert Nyamu when presenting the report in Dar es Salaam. He said that if financial institutions reported all financial crimes and those responsible in the crimes, it could be easier for one bank not to employ a fraudster. “If banks do not want to reveal financial crimes to the public let them share information among themselves so as to get rid of fraudsters,” said Mr Nyamu.

The report reveals that across the region, perpetration of financial crimes commonly involves a combination of internal and external parties through collusion, which has perpetually proven to be effective at compromising internal controls.

“Non-management personnel were perceived to be the most likely to perpetrate financial crimes in organizations.”

The most prevalent forms of financial crime across East Africa are reported to be cash theft at 72 per cent in Kenya, 67 per cent in Uganda and 71 per cent in Tanzania.

While cheque fraud accounts at 44 per cent in Kenya, 50 per cent in Uganda and 14 per cent in Tanzania, asset misappropriation stands at 33 per cent in Kenya, 25 per cent in Uganda and 29 per cent in Tanzania.

The most likely causes of financial crimes across the region, according to the report are abundant liquidity in the industry which makes it attractive to fraudsters and weak or inadequate controls. “The prevalence of different forms of financial crimes across the region is a reflection of varying degrees of complexity and maturity of the sectors and services in each country,” says the report.

In Tanzania, 50 per cent of the respondents feel that the most likely causes of financial crimes are weak or inadequate financial crimes controls; and diversity of products which are not matched with robust controls mechanisms.

This financial crime survey focused on the wider financial services industry across the East Africa region covering Kenya, Uganda and Tanzania with 32 respondents drawn from the banking, insurance, real estate and capital markets sectors.

In a move to mitigate financial crimes in all three countries, a majority of the respondents stated that they have implemented segregation of duties and job rotation.

“In Tanzania, 100 per cent of the respondents stated that they also perform ongoing monitoring of employees in high risk departments as a mechanism to mitigate financial crimes,” says the report.

Most organisations also conduct risk based transaction monitoring on an ongoing basis: 71 per cent in Kenya, 67 per cent in Uganda and 50 per cent in Tanzania. However, Mr Nyamu urged financial firms to introduce high tech as a means to prevent financial crimes.

“In Tanzania and East Africa at large, financial institutions never use the right technologies to mitigate financial crimes. Banks do not have right technologies to notice a time when crimes occur and prevent it. They need to build a system that can tell that someone is conducting a crime now and be able to stop it,” said Mr Nyamu.

Across the region, 67 per cent of banks do not have automated systems to facilitate monitoring and reporting of suspicious and cash transactions, while 5 per cent have a semi-automated system.

None of the insurance companies have an automated system to facilitate monitoring and reporting of suspicious and cash transactions.

“Some of the insurance sector players stated that they have virtually no cash transactions,” says the report.

Across the region, the greatest impacts of financial crimes are perceived to be reputational damage and actual financial losses. In all three countries, the most commonly used mechanisms for mitigating financial crimes are segregation of duties and job rotation, while the most commonly used detection mechanism across the region is risk based internal audits.

“In view of this, it is imperative for all players in the industry to invest in the right systems, processes and people, underpinned by robust technology, in order to mitigate the impact of financial crimes and ultimately safeguard stakeholder value.”

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